The Federal Reserve expects to keep its benchmark interest rate pegged near zero at least through 2023 as it strives to accelerate economic growth and drive down the unemployment rate. The central bank also said Wednesday that it will seek to push inflation above 2% annually. The Fed left its benchmark short-term rate unchanged at nearly zero, where it has been since the pandemic intensified in March. The Fed's benchmark interest rate influences borrowing costs for homebuyers, credit card users, and businesses. Fed policymakers hope an extended period of low interest rates will encourage more borrowing and spending, though their new policy also carries risks of inflating stock or causing other financial market bubbles, the AP reports.
The announcement signals that Fed chair Jerome Powell and his colleagues "plan to be extraordinarily patient as they try to cushion the economy in the months and years ahead," the New York Times notes. The Fed’s moves are occurring against the backdrop of an improving yet still weak economy, with hiring slowing and the unemployment rate at 8.4%. Still, at a virtual conference with reporters following the statement, Powell said that the economy has recovered more quickly than the Fed had expected. The Fed updated its forecast for GDP to a decline of 3.7% compared to a June forecast of a 6.5% drop. On employment, the Fed projected an unemployment rate at the end of the year of 7.6% instead of the 9.3% it projected in June.
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